Benchmark published a report Friday on Groupon (NASDAQ: GRPN) after the company reported weak 3Q results that were the result of declines in Daily Deals and third party business. As a result, the firm lowered the price target on Groupon shares from $7 to $4 per share and maintained its Hold rating.

In the report, Benchmark wrote that while earnings were somewhat offset by Groupon Goods growth, "Groupon continues to face challenges outside the US, including the implementation of a better targeted marketing strategy and improving deal mix, with international gross
billings falling by 10% sequentially, while the mix shift to goods continues to put negative pressure on margins. Although we believe Groupon has a number of avenues through which it can return to cash flow growth, we suspect the Company has re-entered a prolonged investment phase which, along with the sales mix shift, could result in declining cash flow into 2014."

Benchmark went on to say, "Further growth of Groupon Goods was a bright spot in the quarter, with revenue more than doubling sequentially to $145 million, or more than 25% of total revenue. We estimate that direct revenue could reach 45% of revenue by the end of 2013. We think Groupon only needs one segment to be successful as long as the other channel is sustainable, with growth augmented by add-on services including the recently launched mobile payment platform and reservation app on the iPad. However, Goods as the primary platform negatively impacts the long-term margin profile and may continue to cannibalize deals revenue, which also saw a modest reduction in the take rate to 39% in the quarter."